Which exchange rate should you use today?
With the exchange rate market on a collision course with the US dollar, it is time to take stock of what is happening.
Here are my thoughts.
The dollar has lost about 5% of its value since President Donald Trump took office, and its trade surplus with China is now $6.9 trillion.
The US dollar is not as strong as it once was.
It is now about 3.5% weaker than the euro and 2.8% weaker compared to the Japanese yen, according to Reuters data.
This means the dollar has suffered an enormous blow, which is partly due to the Trump administration’s decision to withdraw the US from the Trans-Pacific Partnership (TPP), which had been one of the signature achievements of Barack Obama.
However, the dollar is still more than 1.2% stronger than the Japanese Yen, which has been more than 2% stronger since Trump took over.
The Japanese Yen has risen about 12% since the start of the year and is trading at about 6% higher than the dollar.
It is worth noting that the yen is still only about 1.7% above the US Dollar and that the dollar/yen exchange rate has been moving slightly lower since Trump’s inauguration.
On the other hand, the euro has been gaining about 10% since Trump assumed office, thanks to the ECB’s decision not to cut its key interest rate on Monday.
The euro has also been rising about 7% in recent weeks, and is now trading at 4.6% above its level on February 14, according the International Monetary Fund.
In this context, it makes sense to use the exchange rates from the US Federal Reserve Bank of New York (FRBNY) and the Bank of England’s Monetary Policy Committee (MPC) when making comparisons.
To be precise, the USFII data indicates that using the Fed’s and the MPC’s exchange rates for US dollars will yield a trade surplus of roughly $1.1 trillion.
That is the equivalent of about $200 billion more than what the Fed was able to buy in February.
The $200bn is in the US$, but the $200b is also in the EUR, and so on.
It also implies that the US trade surplus is $200.6 trillion, which translates into an exchange rate of about 7.5%, and this is the level that the Fed would have needed to buy back US Treasuries at at the time of the Trump trade surplus.
The Fed’s official statement on the Trump-traded $200billion swap suggests that it may have bought back some of the debt it sold.
This would mean that the trade deficit would have increased from about $20 trillion to $30 trillion, but it would also have resulted in a $100.4 trillion dollar deficit in the Treasury market, according a new report from Credit Suisse, which was released on Wednesday.
So, how can you use the US Fed and the MPC’s exchange rate?
It is very important to remember that these are the official exchange rates.
If the USFed or the MPCs exchange rates are higher than what you would normally use, then you are using a “short term” trade surplus, meaning that the value of your US currency is lower than the value that the government would be able to get back if it bought back all of its Treasury bonds at the current exchange rate.
Here is a table that explains the difference between these two currencies, with the official USF II exchange rates as the baseline.
If you have more than $200 trillion in your account and need to buy US Treasury bonds, you can use the official Fed rate, which gives you a much higher trade surplus compared to what the government could buy back with the money it spent buying Treasurys.
Now, if the official FRBNY and MPC rates are lower than what is used by the US government, you may not be able buy Treasures at a good price.
So, you could sell some of your Treasurses, which would reduce your trade surplus and still leave you with a trade deficit.
You could also buy Treasee bonds from a broker or exchange-trading platform.
But the trade surplus would still remain $200-$300 billion, meaning your trade deficit is still $200+ billion, which means that the amount of money you could have saved would have been less than the $300 billion.
This is why it is important to understand the trade balances of the two institutions.
For example, the Fed could have bought Treasured bonds at about the official rate of 7.25%, which is around $1,500 per dollar of Treasury bond.
This trade balance would have left the US Treasury $700 billion above its official trade surplus figure.
However, the actual trade balance is closer to $1 trillion, so the amount you would have saved is more like $300.
What is the trade balance of the US economy?